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AMERICAS NEWS: All shook up at MSREF

A departure, an administrative leave of absence and an investigation in China have brought uncertainty to the giant investment firm. PERE Magazine March 2009 issue

If Morgan Stanley was hoping 2009 would be less turbulent than the latter half of 2008, the New York-based bank was wrong.

Just months after seeing John Carrafiell step down as global joint head of Morgan Stanley Real Estate Investing to take up a senior advisory role with the bank, Sonny Kalsi has been put on “administrative leave”– with his role taken over by former real estate chiefs Owen Thomas and Jay Mantz.

The surprise move follows Morgan Stanley's announcement in a regulatory filing earlier last month that it was investigating a former China-based real estate executive for “actions” that “appear to have violated the Foreign Corrupt Practices Act”.

According to the statement, “Morgan Stanley terminated the employee [contract], reported the activity to appropriate authorities and is continuing to investigate the matter”. Reuters reported that managing director Garth Peterson, Morgan Stanley's former head of real estate investing in China, was the man under investigation. Peterson left the bank in December.

Morgan Stanley Real Estate set up its Shanghai office responsible for China deals in 2006 and Peterson, who speaks fluent Mandarin, earned his reputation in China's property sector by leading several landmark deals.

Morgan Stanley declined to comment on Peterson and Kalsi or on whether the two incidents were linked.

The reshuffle though marks the culmination of a bumpy ride of late for Morgan Stanley. Not only did the bank reveal in December it was pulling out of the separate account business in order to concentrate on its commingled real estate funds, but that month it also reported a $100 million loss in its real estate, infrastructure and private equity funds, particularly in Asia.

Kalsi was instrumental in expanding the company's operations in Asia and had taken on the role of global head of Morgan Stanley Real Estate Investing following Carrafiell's decision to step down in December after 21 years with the bank. Kalsi is still on full pay but there is no date for a return.

According to people familiar with the matter, Owen Thomas, chief executive officer of Morgan Stanley Asia, has now returned to the real estate team after previously leading the group for five years between 2000 and 2005. He has been joined by another former real estate pro, Jay Mantz. Mantz, currently co-head of merchant banking, will now act as president and chief investment officer of the real estate division. Mantz helped run property investing from 1999 to 2007, when he was appointed global co-head of Morgan Stanley's Direct Investing Group.